While the output of the overall injection molding sector declined moderately in 2005 compared with the previous year, production of molded packaging products was steady, and in some cases increased. In 2007, production levels for packaging will be stable in the first half of the year and gradually accelerate in the second half. Overall output of injection molded packaging is forecasted to grow 4% to 5% this year.
Long-term trends favorable
This forecast is based on long-term trends that drive demand for plastics packaging. One trend is the retreat of prices of plastic resins from their recent highs. A second trend is strong growth in retail sales. In 2006, total retail sales (minus autos) ex panded by nearly 8%. Food and beverage stores make up the largest segment of the retail sector, and receipts in these stores expanded by 5% in 2006. Growth will be in the 4% to 5% range again in 2007.
One other large market for packaged products is health and personal care. Sales of these products en joyed an overall gain of 7% in 2006, and the growth rate will top 5% in 2007. The fastest growing retail segment is online and mail order, up 13% in 2006. This rate of growth will decelerate a bit in 2007, but it will remain strong. Shipping of many products puts an additional premium on packaging that is lightweight and durable, so this too increases the need for plastics packaging.
One final economic trend that bodes well for plastics packaging is the strong growth in corporate profits for companies that process food and beverages. Food industry profits jumped 8% in 2005 and were up another 6% in 2006. One reason for this is the explosion of varieties of single-serving beverages. Demand for flavored teas and coffees, energy drinks, plastic beer bottles, and bottled water continues to expand–as does the need for molded plastics packaging.
Bottle caps benefit
One segment that is specifically affected by the jump in single-serving beverages is plastic bottle caps. Polypropylene caps and closures account for about 75% of this segment, and demand for PP caps has been in a steady uptrend since 2003. High resin prices curbed growth of PP caps in 2006, but they still managed to post a small gain over the previous year. Growth in output of PP caps in 2007 will be 4% to 5%.
Polyethylene caps and closures comprise only about 25% of the market, but growth in 2006 was quite strong. After a rise of nearly 10% in 2006, production of molded PE caps will expand by another 5% in 2007.
Output of most other molded packaging and related products will be steady or better in 2007, with the second half of the year generally stronger than the first half. Molded pails were down modestly in 2006 due largely to the decline in residential construction, and this market will continue to struggle in 2007. Plastic cups have been negatively affected by resin costs, so as resin prices gradually subside, plastic cup production will recover in the coming months. Meanwhile, the market for plastic crates has been buoyed in the past few years by rising demand for shipping materials that are lightweight and durable. This trend will continue in 2007.
Bill Wood, an independent economist specializing in the plastics industry, heads up Mountaintop Economics & Research, Inc. in Greenfield, Mass. He can be contacted by e-mail at BillWood@PlasticsEconomics.com. His monthly Injection Molding and Extrusion Business Indexes are available at www.ptonline.com.